Abbott Q1 Preview: Expect Diagnostics Business To Drive Earnings Growth

by Trefis Team
Abbott Labs
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Abbott Labs (NYSE:ABT) is set to report its Q1 2018 earnings on April 18, and we expect the company to post solid numbers, primarily led by its Diagnostics business, reflecting the benefits of the Alere acquisition. We also expect the company’s Generic Pharmaceuticals segment to post steady growth amid its expansion in emerging markets, such as India, and Latin America. We have created an interactive dashboard on Abbott’s expected performance in 2018. You can adjust the revenue and margin drivers to see the impact on the company’s performance.

Diagnostics Business To Lead Earnings Growth

We expect Abbott’s Generic Pharmaceuticals revenue to grow by 6% in 2018, primarily led by its expansion in emerging markets, which led to a double digit segment revenue growth in the previous quarter. While Abbott sold its developed markets branded generics pharmaceutical business to Mylan Inc., it retained its branded generics business in developing markets, which are growing at a faster pace, driven by growth in disposable income and spending on healthcare. This should bode well for Abbott’s branded generics business. We don’t expect much change in the company’s Nutritionals segment, though it should perform slightly better, as the company adjusts to new regulations in China.

In the Medical Devices segment, we expect the revenues to grow in mid-single-digits, as the company should leverage the stronger market position that it has gained with the St Jude Medical acquisition in 2017. It should be noted that the segment revenues grew 2x in 2017, reflecting the St Jude acquisition benefits. In the long run, Abbott will likely benefit from its robust pipeline, especially in coronary stents, where the company is working on well-staged advances as well as innovative technologies to capture additional market share. Looking at the company’s Diagnostics business, we expect the revenues to grow 40% in 2018, primarily reflecting the impact of the Alere acquisition. It should be noted that Alere generated over $2.2 billion in revenues in 2015 and 2016, and Abbott closed the acquisition in October, 2017. 

Overall, we expect the company to post adjusted earnings of $2.90 in 2018. We forecast a TTM price to earnings multiple of 23 by the end of 2018, which is slightly lower than most of the estimates for the sector, to arrive at our price estimate of $66 for Abbott Labs. This implies a premium of over 10% to the current market price.


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